Kosovo, a land forgotten by many after the end of the war in 1999, is the scene of a new battle now. The government wants to build a new coal power plant; a group of civil society organisations strongly opposes the plan. The story has become a test case for whether international government-backed investors should support coal power in Europe and around the world. With US President Barack Obama’s cold war on coal, the Kosovo story will attract even more attention.

Both sides in the debate have their arguments, and their allies. The World Bank is supporting the proposal to build the coal plant. European commissioners Günther

Oettinger (energy) and Štefan Füle

(enlargement) outraged civil society by writing a letter urging the World Bank’s then president, Robert Zoellick, not to bow to pressure from NGOs and withdraw support for the project. The commissioners’ arguments were environmental – a new, cleaner plant would allow Kosovo to shut down the older, dirty ones. The support for coal projects by government-backed financial institutions like the World Bank, European Bank for Reconstruction and Development or KfW is usually based on two additional arguments: coal is cheaper, and indigenous coal resources provide energy security and, often, national security.

As familiar as they may sound – all three arguments are outdated, and in the case of south-east Europe just wrong. The reasons are simple: Balkan countries can solve their energy security issues by tapping into the abundant and economically viable renewable resources in the region and by addressing the issue of very low energy efficiency.

Southern Europe receives at least a third more sun than Germany, which is home to some of the largest solar power plants in the world. With the sharp decline in the prices of solar panels, countries like Greece, Serbia or Kosovo can produce solar electricity much cheaper than Germany where feed-in tariffs have dropped to €120/MWh or half the retail electricity price.

Currently, the lowest solar feed-in tariff for solar energy in Bulgaria, a country with comparable or even slightly lower solar irradiation than Kosovo, is €80/MWh. Wind tariffs are even lower. The region might be able to sustain even lower renewables tariffs provided regulators can secure the transparency and predictability of tariffs and that the cost of capital comes down.

All these factors depend on policies, a reliable investment climate and not on taxpayers’ money.

At the same time, investing in coal is getting more and more expensive. An expert opinion on the new Kosovo power plant, commissioned by the World Bank, says that the levelised electricity cost “for the new lignite plant has been calculated at €81.42/MWh compared with €89.78/MWh for natural gas”. Both coal and gas are simply getting more expensive than renewables.

If you add all the external factors to the price, the picture becomes even more striking. A recently published report by HEAL (Health and Environmental Alliance) calculates that if the cost of health damage is factored in, the price of coal-generated electricity would rise by €233/MWh in Bulgaria, €295/MWh in Romania, and €120/MWh in Greece. Health costs in countries in the western Balkans are likely to be even higher due to more lenient pollution control outside the EU.

There are two countries in Europe with 100% or near 100% renewable electricity thanks to hydro-power generation: Norway and Albania. Hydro-generated electricity also has a substantial share in other countries – 57% in Montenegro, 19% in Serbia, 28% in Romania, and 23% in Turkey, but according to Deutsche Bank research: “South-eastern Europe utilises just 40% of its hydropower potential.” Basic arithmetic would suggest that just by developing its hydro potential, south-east Europe can reach close to 100% renewable electricity. The region is rich in geothermal resources and its developed agriculture and low population density offer substantial biomass energy resources.

To top all that, most of south-east Europe offers another golden energy source – its disastrously low energy efficiency. Investing in energy efficiency will not only reduce the need for new energy capacity but will dramatically reduce energy bills and energy poverty, improve quality of life in renovated houses, increase economic competitiveness, generate local jobs and strengthen the energy security. And it will improve public health.

These figures and arguments should be sufficient for any investor to seriously reconsider its support for coal in the region. So why then is coal still on the table?

Today, south-east Europe does not have an ambitious and consistent policy for employing renewables. There are strong currents that sway energy policies in the region away from renewables. The incumbent energy industry is fighting hard. Climate change is not an argument that is widely understood and embraced, and the scale of the health damage by coal is still relatively unknown. Existing renewables developments are not well regulated. And governments consistently blame renewables for the inevitable increase of electricity prices.

Unfortunately, external policy pressure is also misleading and unhelpful. The European Commission has defined south-east Europe only as a gas corridor and is ignoring its abundant indigenous energy resources. This view creates a welcome vacuum for gas import interests that are pushing pipeline projects with no serious analysis of alternatives and with disregard of the specific interests of the “corridor states”.

And for most south-east European countries, pressure and guidance by the European Commission has a significantly greater influence than in any of the old EU member states. The same is true of the influence of international financial institutions such as the EBRD and KfW, which are strong drivers of policy change in the region, but do not unequivocally support a low-carbon energy strategy in the region. They often suppress economic opportunities in individual countries and fail to support the contribution these countries could make to the wider EU energy security and the climate goals.

The relatively small amounts that a government-backed bank spends on a coal project in the region gives a project a stamp of political approval that is much needed by national governments and other investors. These institutions therefore shoulder a huge political responsibility in supporting or refusing to support coal. The recent announcement by the World Bank to further strengthen its restrictions on financing coal and the decision by the European Investment Bank to effectively not finance coal any more are welcome signs in the right direction.

For a region where the alternative is not only available but obviously more economically and socially beneficial, it is madness to provide funding life support for coal.

Julian Popov served as minister of environment and water in the recent caretaker cabinet of Bulgaria. He is an adviser to the European Climate Foundation.